Gold (XAU) Price Forecast: Geopolitical Uncertainty Drives Gold Rally, Dollar Caps Gains

Gold Edges Higher Amid Middle East Conflict, Focus Shifts to U.S. Inflation

Gold prices rose slightly on Monday, driven by heightened geopolitical tensions in the Middle East, which pushed investors toward safe-haven assets. Meanwhile, traders turned their attention to upcoming U.S. inflation data, which could offer further insight into the Federal Reserve’s interest rate path. The Fed is widely expected to announce a rate cut during its November meeting, but the extent of the reduction remains a key focus for market participants.

At 12:32 GMT, XAU/USD is trading $2648.32, down $5.52 or -0.21%.

Middle East Conflict Fuels Safe-Haven Demand

Escalation in the Middle East, including Israeli airstrikes on Hezbollah positions in Lebanon and Gaza, has created a sense of uncertainty in the global market, leading to increased demand for gold. With tensions unlikely to ease soon, investors have turned to gold as a safeguard against market volatility. Ricardo Evangelista, a senior analyst at ActivTrades, noted that the current geopolitical climate is keeping gold prices steady, despite a strengthening U.S. dollar.

“The tug of war between the dollar’s recent strength and safe-haven demand is likely to keep gold prices range-bound until clearer signals emerge from U.S. economic data,” Evangelista stated.

Treasury Yields Climb as Rate Cut Expectations Adjust

The 10-year U.S. Treasury yield, which is closely watched by traders, climbed back above 4% on Monday after strong labor market data shifted market sentiment. September’s nonfarm payrolls increased by 254,000, well above the expected 150,000, suggesting the U.S. economy remains resilient. As a result, expectations for a significant rate cut in November have diminished, with traders now pricing in a 95% chance of a 25-basis-point cut, according to the CME Group’s FedWatch tool.

Stronger-than-expected economic data has led to a reassessment of how aggressively the Fed will ease monetary policy. “The employment update suggests that the Fed might reconsider a November rate cut altogether,” said Ian Lyngen, head of U.S. Rates Strategy at BMO Capital Markets, although he noted that a 25 basis point reduction remains the most likely outcome.

Dollar Strengthens, Limiting Gold’s Upside Potential

The U.S. dollar hovered near a seven-week high, bolstered by the robust jobs report. A stronger dollar typically makes gold more expensive for foreign buyers, capping any significant upward movement in gold prices. The dollar index rose 0.05% to 102.60, nearing the peak of 102.69 reached after Friday’s jobs data release. Analysts, including Francesco Pesole from ING, noted that the market has largely abandoned the expectation of a 50-basis-point rate cut, limiting the greenback’s downside potential.

Despite these headwinds, gold has managed to stay relatively stable, as ongoing demand for safe-haven assets continues to counterbalance the dollar’s rise.

Market Forecast: Gold Likely to Remain Range-Bound

Gold is expected to trade within a narrow range this week as markets await crucial U.S. inflation data. Thursday’s Consumer Price Index (CPI) report will likely shape the next move for both the dollar and gold, particularly as the Federal Reserve prepares for its November meeting. Analysts anticipate the CPI data to reaffirm expectations of a modest 25-basis-point rate cut.

For now, geopolitical tensions should continue to provide support for gold, though any further gains are likely to be limited by a strengthening U.S. dollar. Gold is expected to remain near its current levels, with downside risks should the dollar rally further. A breakout from this range would likely depend on inflation surprises or an escalation of the Middle East conflict.